Shawmut Reports Quarterly Profit

Shawmut Earns $2.3 Million, Achieving First Profit In A Year

October 18, 1991|By DAVID FINK ; Courant Staff Writer

Continuing to emerge from the financial thicket, Shawmut National Corp. reported net income Thursday of $2.3 million for the third quarter, a bit of black ink that analysts say strengthens the company as it continues to negotiate a merger with Bank of Boston Corp.

The 2-cent-a-share income for the quarter ended Sept. 30 -- compared with a net loss of $58.7 million, or 81 cents a share, in the second quarter -- was the first profit since the third quarter of 1990, when the bank earned $11.9 million, or 15 cents a share.

Joel B. Alvord, Shawmut's chairman and chief executive officer, said the bank was encouraged by a $129.6 million, or 10 percent drop, in bad loans from the second quarter and an 8 percent, or $121.5 million, drop in all nonperforming assets.

He said that the company's equity capital -- the difference between assets and liability that forms the bank's financial cushion -- was more than $1 billion, and that the company is maintaining a high level of liquidity.

Analysts cautioned that the company, parent of Connecticut National Bank, is not yet out of the woods, with bad loans and other real estate owned still standing at 10.33 percent of all loans.

"They haven't gotten down to the magic single digits yet," said Nancy Bush, an analyst with Brown Brothers Harriman Inc. in New York.

Nevertheless, the analysts agreed that Shawmut's reserves -- equal to 89 percent of its bad loans -- and a drop in charge-offs to $85.1 million from $101.6 million in the second quarter added to an increasingly brighter landscape.

"Happy days are not here yet," said Stanley T. Wells, executive vice president at Keefe Bruyette & Woods Inc. in Hartford. "But what is important is that the growth of new problems has come to a stop, and there is evidence of some actual improvement. Here's a company that's over-reserved relative to other banking companies. I find that very comforting." James E. Moynihan Jr., an analyst at

"They are addressing their overhead costs nicely," Moynihan said. "The other thing I liked is that their fee income continues to show good growth, and that's important to bring them back to good health." Sources have said Shawmut and Bank of Boston are continuing to talk and review each other's loan portfolios, but their progress slowed after Shawmut officials expressed doubts about the Bank of Boston portfolio at a Shawmut board meeting Sept. 28. The delay in reaching an agreement has led to increasing speculation about the companies' altering -- or abandoning -- the deal.

The potential impact of Shawmut's quarterly results on the merger talks is unclear, but analysts said it could affect them in several ways.

Several analysts said they believe Shawmut shareholders would make out better in a stock swap with Bank of Boston because Shawmut's position has grown stronger. However, they said the value of the swap would depend on Bank of Boston's results, which are expected to be released next week.

Some analysts said the Shawmut report could make federal regulators more inclined to approve a merger, especially because they expect similar improvement in Bank of Boston's third-quarter report.

Others, such as Advest's Moynihan, cautioned that even optimistic earnings were unlikely to budge regulators who have reportedly said the two banks will need to raise as much as $1 billion to make a merger work.

"The regulators could soften and stand back and say, `You don't need all the capital in the world, you just need almost all the capital in the world,' " Bush said.

Wells said Shawmut's upward climb out of red ink could give ammunition to Shawmut shareholders and officials who have opposed the proposed merger with Bank of Boston.

Total loans at the end of the quarter were $14 billion, down from $16 billion as of Sept. 30, 1990. Total assets stood at $22.8 billion, down from $24.5 billion a year ago, and deposits stood at $14 billion, down from $15.6 billion at the end of the third quarter in 1990.

Although Wall Street did not rave about the earnings increase -- Shawmut's stock remained unchanged at $8.25 a share on heavy New York Stock Exchange volume of 740,000 shares -- the general feeling remained upbeat.

"The numbers were a lot better than some of the street estimates," Moynihan said. "It certainly portrays a picture of some stabilization."